MFOHome About Commentary Discussions Funds The Best Resources Support Us!

Howdy, Stranger!

It looks like you're new here. If you want to get involved, click one of these buttons!

Sign In Register

Categories

In this Discussion

Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

    Support MFO

  • Donate through PayPal

12 Money Moves Before the end of the Year

beebee
edited December 9 in Other Investing
Not the 12 days of Christmas, but close:

Never Heard of "Tax Gain Harvesting"...seems like a good one and doesn't require a wash sale.
Consider Tax Gain Harvesting

If you’re in the 0% capital gains tax bracket, consider selling appreciated investments and repurchasing them to reset your cost basis higher at no tax cost.
Wash sale rules don’t apply to gain harvesting.
Tax gain harvesting could save you taxes in future years when your income might be higher.
Long-Term Capital Gains Tax Brackets Quick Reference (2024)
Filing Status----------0% Capital Gains-------15% Capital Gains-------20% Capital Gains
Single------------------------$0-$47,025----------$47,026-$518,900-----------Over $518,900
Married Filing Jointly-------$0-$94,050----------$94,051-$583,750---------Over $583,750
Head of Household--------$0-$63,000----------$63,001-$551,350----------Over $551,350

make-these-12-must-do-money-moves-before-the-end-of-the-year

Comments

  • msf
    Assume that the market will go up during the year (that happens more years than not). Then if one doesn't need the cash flow from RMDs, one wants to take RMDs late when it's a smaller percentage of an IRA. Conversely, one wants to make Roth conversions early when a given conversion is a bigger percentage of an IRA. These are in conflict because one must take RMDs before doing any conversions.

    For those with small (or no) RMDs and making large Roth conversions, doing everything early in the year can make sense. If one makes QCDs as part of the RMD (i.e. earlier than conversions), then the QCDs count toward the RMD quota.

    The bottom line is that for some, QCDs, RMDs, and conversions are better done as beginning of year moves than as end of year moves.

    "Consider whether it’s advantageous to convert some traditional retirement account funds into a Roth retirement account."

    A conversion can make sense even if you expect to be in the same or lower tax bracket in the future. If one has "space" in the 12% tax bracket (e.g. pre-SS, pre-pension, pre-RMD, post-retirement), then one can fill up that space with conversions. This is especially advantageous if one can pay the taxes on the conversion out of a taxable account.

    Given the uncertainty in investment distributions, this is a move that may best be done near the end of the year when estimated distributions are available and you know how much "space" you have available.
  • Derf
    Below find 2024 tax rates.
    35% for incomes over $243,725 ($487,450 for married couples filing jointly)
    32% for incomes over $191,950 ($383,900 for married couples filing jointly)
    24% for incomes over $100,525 ($201,050 for married couples filing jointly)
    22% for incomes over $47,150 ($94,300 for married couples filing jointly)
    12% for incomes over $11,600 ($23,200 for married couples filing jointly)

    @msf If I were to do a conversion in Dec. could I pay the taxes when I file in April of 2025 with no penalty ?
  • msf
    If your total withholding and estimates are at least 100% (or 110%) of last year's taxes, including January's estimates, then you're set. Otherwise you need to pay in at least 90% of what you'll owe this year in order to avoid penalties.

    (The higher percentage is if you had higher income last year.)

    Normally the IRS wants you to pay that 90% in even amounts. But if you have a lot of income in the 4th quarter because of a conversion (or any other reason), you're allowed to make a larger estimate in January without getting dinged for uneven tax payments.

    To do that you can file a Form 2210 Schedule AI (annualized income)
    https://www.irs.gov/pub/irs-pdf/f2210.pdf

    I did that in a few years. It's not extremely hard but it is very tedious.

    Again - if you're shooting for 100% (or 110%) of last year's taxes, it doesn't matter what you make this year. If you're shooting for 90% of current taxes, then you need to make sure with a Jan 15th estimate that you hit that 90% figure of your ultimate taxes including the conversion amount.
  • AnnaAnna
    I use the 110% and divide it evenly between the quarters. All of my current RMD dumps are in December, so once that happens and I get a better estimate of other scat like dividends and capital gains, I adjust the January quarterly estimated tax, if grossly unbalanced. But, since I try to get it slightly over and never risk a penny too low (I'm lazy), it has never been challenged. Of course, if the income produced by the income being taxed is high enough, you would want to hold on to the taxes until you actually receive the income. Automated quarterly tax withdraws are a lazy person's friend.
  • yogibearbullyogibearbull
    5.1, 6.1. Open DAF or contribute to it.
    It has been a good year with great gains in some speculative highflyers. Think of donating in-kind to your DAF (new or existing). Be sure to bunch things so that you can itemize (Schedule A). Be aware of income related limits.

    You can then take advantage of DAF tax deduction by selling other appreciated stocks or funds to approximately match the realized capital gains with the DAF contributions. Then, the overall tax effect will be nil.
  • Derf
    Thanks for the info @msf . I lowered my tax takeout on RMD's to cut refunds from state & fed, so will do no conversions this year. In prior years amount of refunds has been very
    evenly returned.
Sign In or Register to comment.